Administration Calls on Congress to Pass Cell Phone Simplification
June 18, 2009
IRS Commissioner Doug Shulman announced this week that the Obama Administration fully supports legislation to remove tax consequences for employees' personal use of employer-provided cell phones. His remarks followed the release last week of IRS proposals aimed at simplifying cell phone recordkeeping requirements. Shulman's statement clarified the administration's position behind legislative simplification:
"Some have incorrectly implied that the IRS is 'cracking down' on employee use of employer-provided cell phones. To the contrary, the IRS is attempting to simplify the rules and eliminate uncertainty for businesses and individuals. Although some of the proposed changes would add clarity, the current law will inevitably leave widespread confusion among employees and businesses. Therefore, Secretary Geithner and I ask that Congress act to make clear that there will be no tax consequence to employers or employees for personal use of work-related devices such as cell phones provided by employers. The passage of time, advances in technology, and the nature of communication in the modern workplace have rendered this law obsolete."
IRS officials have not made any public statements related to the current treatment of employer-provided cell phones in audits. However, in light of Commissioner Shulman's remarks, it is foreseeable that the Service will cease audits in this area in anticipation of enactment of the legislation.
Notice 2009-46. In the absence of legislative relief, the IRS seeks comments on several proposals aimed at simplifying recordkeeping requirements for employees' business use of employer-provided cell phones. Notice 2009-46 outlines three substantiation methods for employers to use in separating out business and personal use of cell phones.
Written Policies Required of Users of Simplified Methods. Employers wishing to use one of the simplified methods ultimately published by the IRS and Treasury will need to implement a written policy that requires employees to use the employer-provided cell phones for business use only and prohibits personal use, except for minimal personal use (similar to current Treasury regulations applicable to employer-provided automobiles in §1.274-6T.) In addition, the Service plan to require that employers "reasonably believe" that cell phones are not used by employees for non-business use other than minimal personal use.
Recordkeeping methods proposed in the notice:
- Minimal Personal Use Method. IRS is considering two proposals allowing employers to deem all employee usage of a cell phone as business usage. The first approach would require the employee to furnish the employer with documentation establishing that the employee maintains and uses his or her own personal cell phone for personal purposes during work hours. A second approach would identify a specified amount or type of "minimal" personal use that would be disregarded in determining an employee's personal use of an employer-provided cell phone (e.g., number of minutes or uses for certain personal purposes).
- Safe Harbor Substantiation Method. Under this approach, the employer would treat a specified percentage of each employee's use of the employer-provided cell phone as business usage. The remaining percentage would be deemed for personal use. IRS proposes a business use percentage of 75%.
- Statistical Sampling Method. Generally, this method would allow the employer to use an approved statistical sampling method to determine the percentage of personal use of employer-provided cell phones. The employer would then multiply the percentage by the value of each employee's total usage to determine of value of personal usage. The remaining portion of the employee's usage would be deemed to be business usage.
Fair Market Value of the Taxable Fringe Benefit. Generally, the fair market value of an employee's use of the employer-provided cell phone is a taxable fringe benefit and included in the employee's gross income. Notice 2009-46 states that an employer's cost to provide the cell phone is not determinative of the fair market value of an employee's fringe benefit. In addition to seeking public comments on these methods, the IRS asks for comments on whether a simplified valuation method would be helpful to employers in determining the fair market value to an employee of an employer-provided cell phone.
Advocacy: Share Your Institution's View. NACUBO continues to push for passage of S. 144/H.R. 690,--the Modernize Our Bookkeeping in the Law for Employees (MOBILE) Cell Phone Act of 2009.
NACUBO will also prepare comments to Notice 2009-46 on behalf of the higher education community.
It would be valuable to hear your institution's reactions and comments on the proposals in Notice 2009-46. Please share your institution's observations with tax policy director Mary M. Bachinger.
Director, Tax Policy
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